Transactions of sale of shares of a closely held company can be construed as transfer of land and short term capital gain is chargeable

Bhoruka Engineering Inds. Ltd. Vs DCIT (ITAT Bangalore)-  The whole transaction has been arranged in a sequential manner with M/s. Bhoruka Steel Ltd selling its landed property to BFSL for a nominal value of Rs. 3.75 crores ; BFSL never before doing any business other than financial services purchases the land for Rs. 3.75 crores ; immediately thereafter the assessee company and its entire group holding 98.73% of shares in BFSL selling the share holding to DLF­CDL for a consideration of Rs.  89,28,36,500/- without attracting any levy of taxation.

This episode has been made possible by getting away from Bangalore Stock Exchange and going to Magadh Stock Exchange to carry out the sale transaction of shares and by paying STT for claiming exemption from long-term capital gains arising on sale of shares u/s. 10(38) of the IT Act, 1961. The assessee company and its group have on the face of it sold their share holding in BFSL, but in fact, sold land itself to DLF-CDL and at the same time giving a colour of exempted long-term capital gains against the short-term capital gains arising on the transfer of the landed property. In the facts and circumstances of the case, we find that this is a clear case of colourable device to evade payment of taxation on short-term capital gains. By selling the shares to DLF-CDL, the assessee company and its associates have in fact sold the assets and properties of BFSL which included the land as well, which if sold in the normal course, would be answerable to levy of short-term capital gains taxation.

Bhoruka Engineering Inds. Ltd.

Vs

Deputy Commissioner of Income Tax

Decided By- ITAT Bangalore

Decided on 10.02.2011

I.T.A No. 1139/Bang/2010

(Assessment Year : 2006- 07)

O R D E R